The Health and Social Care Act, after much debate, has now received Royal Assent. The provisions remain to be brought into force by commencement orders (except for a limited few which are not relevant to this briefing note) but we now have clarity on the framework of the restructuring of the NHS.

The Act repeals the Private Patient Income Cap, but FTs will not be permitted to generate unlimited amounts of additional income from non NHS activity because the Act creates a series of hurdles to an FT’s ability to generate income from activities outside of its principal purpose (see below), and gives Governors a greater say in the FT’s commercial and financial affairs.

The Act reforms repeal the Private Patient Income Cap, but replace it with provisions limiting an FT’s income generating potential by tying income from non NHS activities back to the FT’s ‘principal purpose’ which is "the provision of goods and services for the purposes of the health service in England".

The Principal Purpose or 50% Test

The Act provides that an FT will not fulfil its ‘principal purpose’ if, in each financial year, its total income from the provision of goods and services for the purpose of health service is exceeded by the total income from any other purposes. The phrase "any other purposes" is much wider than the previous position regarding income derived from private charges and will include all income generated from non NHS activities.

Annual Reports and Forward Plans

The Act extends the list of items FTs are required to provide information on in their Annual Reports and Forward Plans. FTs will be required to include in their Annual Reports information on the impact that the generation of non NHS income it has received has had on its provision of goods and services for the purposes of the NHS.

The Act also provides that each Forward Plan must include information about the FT’s proposals for the generation of income from non NHS activities and the income the FT expects to receive from carrying on these activities.

The Significant Interference Test

Where the Forward Plan contains a proposal that the FT carry on non NHS income generating activities, the FT’s Council of Governors must determine whether it is satisfied that the carrying on of the activity will not significantly interfere with the fulfilment by the FT of its ‘principal purpose’ or the performance of its other functions. The Act requires to Governors to consider these matters and to notify the Board of Directors of its determination.

The 5% Test

Where an FT proposes to increase by 5% or more the proportion of its total income in any financial year attributable to activities other than the provision of goods and services for the NHS, it may implement the proposal only if more than half of the members of the Council of Governors present and voting at a meeting of the Council of Governors approve its implementation.

How can we help?

We have looked beyond the Act to the post-reform landscape, which is indeed a changing one, where FTs not only want to exploit their commercial freedoms, but are equally aware of their need to protect and develop brand reputation whilst managing risk and developing business potential.

As a result of the reforms contained in the Act, FTs will need to review their private patient and non NHS income generating activities to ensure that these comply with the evolving regulatory framework. For FTs who are pushing against their private patient income cap, this may present opportunities to expand their private patient work either alone or working with others, both public and private sector.

Our commercial team would be happy to assist you with understanding the Act reforms and the implications it will have for your organisation. We can also assist you with exploring and developing the different structures which you can use to develop your private patient and other income generation activity including through joint ventures and trading subsidiaries. Our advice in this area draws on our extensive experience in advising FTs on these matters.

We can also provide training and development support for Boards of Directors and Councils of Governors to help prepare for the new regulatory, compliance and governance landscapes.